BIS Warns US Dollar Stablecoins Pose Systemic Risks to Global Banking

Pablo Hernández de Cos, General Manager of the Bank for International Settlements (BIS), has issued a stark warning regarding the growth of US dollar-denominated stablecoins. Speaking at a Bank of Japan seminar in Tokyo, de Cos argued that if these tokens grow large enough to rival traditional currency, they could have material consequences for global economic policy and financial stability. The BIS chief highlighted a fundamental mismatch in how stablecoins are perceived versus how they operate. While marketed as cash-like instruments, de Cos noted that major tokens such as USDT and USDC exhibit characteristics of investment products, citing redemption fees and episodes where secondary market prices diverge from par. The primary systemic concern lies in the reserve assets—typically short-term government debt and bank deposits. De Cos warned that a 'run' on stablecoins could trigger forced liquidations of these reserves, transmitting funding pressure directly to commercial banks and straining already volatile markets. Beyond liquidity, the BIS pointed to the systemic risks posed by permissionless blockchains and unhosted wallets. These tools often bypass conventional Anti-Money Laundering (AML) and Counter-Terrorism Financing (CTF) controls, making them attractive for illicit activity unless stricter safeguards are implemented at on- and off-ramps. This warning aligns with a broader tightening of crypto oversight globally. In Europe, the Bank of France is urging the EU to limit non-euro stablecoins in daily payments, while the UK's House of Lords has questioned the potential for stablecoins to drain commercial bank deposits. Meanwhile, Switzerland is exploring regulated alternatives, with UBS piloting a franc-denominated stablecoin in a sandbox environment.